O'Hare's 'voodoo' economics

For those who like to rate the Chicago news media's biggest mistake over the years, it just may be the over-the-top boosterism for expansion of O'Hare International Airport.

The Chicago Tribune's corporate chieftains decided a few years ago to push the project by harassing every politician who opposed it. Many buckled and switched positions in favor of expansion. One who didn't, U.S. Senator Peter Fitzgerald, explicitly warned that nearly every aspect of the expansion was unwise and unworkable. He was particularly harsh on the economics.

Over the weekend, the Tribune revealed that the FAA wasn't inclined to lift flight caps at O'Hare, a huge blow to those who still insist the plan can work. Within the story is the Tribune's narrative about the shaky economics, stated exactly as Fitzgerald predicted several years ago.

But so far, the airlines have not agreed to pay for the second portion of O'Hare expansion, citing concerns about construction delays and spiraling costs.

The Daley administration initially said the massive airport project would be finished in 2013. Lacking airline agreements and still fighting airport opponents in court over the relocation of a nearby cemetery, the city has not set a date for the project's completion. The extension of flight caps would severely complicate Chicago's effort to pay for the O'Hare expansion, which is behind schedule and at least $400 million over budget.

The city's financial arrangement with the airlines for O'Hare's expansion is based largely on a "pavement before payment" strategy. The city has taken major responsibility to pay the costs for the runway-expansion project up front, mainly by going deeply into debt by selling a higher percentage of bonds than is customary under a traditional airport expansion project.

The airlines, in turn, were expected to reimburse the city, predominantly through increases in landing-fee revenue and passenger ticket taxes, when the new runways came online, allowing a significant increase in O'Hare flights.

But, if increased flights are allowed at O'Hare, how could United and American survive after tacking on large ticket price increases? I guess only after continuing to squeeze out discount carriers who would undercut those high prices.

The entire plan is built on a shaky house of cards that is crashing down.

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